What Alignment Healthcare (ALHC) Said on Its Q3 Earnings Call

Key Points

• Strong growth was offset by rising medical costs: Third-quarter revenue increased 37% and membership rose 31% to 301,200, but the medical benefit ratio climbed to 89.5% due to provider appeals, claims-processing volatility, skilled nursing expenses and catastrophic cases.
• Alignment lowered its 2026 profitability outlook: The company now expects at least $5.25 billion in revenue, $575 million in adjusted gross profit and $100 million in adjusted EBITDA. Fourth-quarter guidance assumes elevated medical costs will persist and projects adjusted EBITDA of at least negative $28 million.
• Management remains optimistic about 2027: Based on early enrollment results, Alignment expects at least 20% top-line growth next year, supported by payment-integrity and clinical initiatives, expansion into San Antonio and Charlotte, and a more balanced HMO and C-SNP product mix.

Alignment Healthcare NASDAQ: ALHC reported third-quarter revenue growth of 37% as membership rose 31% from a year earlier, but the Medicare Advantage insurer lowered its full-year profitability outlook after elevated medical costs, provider appeals and claims-processing volatility pressured results.

Health plan membership reached 301,200 at the end of the third quarter, supporting approximately $1.4 billion in revenue. The company generated adjusted gross profit of $142 million and adjusted EBITDA of $22 million, which Chairman and CEO John Kao said was within the company’s guidance range.

However, the adjusted medical benefit ratio, or MBR, rose 240 basis points year over year to 89.5%. Kao said the company encountered increased provider appeals and disputes following its claims-system migration, as well as higher costs in skilled nursing and catastrophic cases.

Claims Migration Created Volatility

Alignment began migrating to the Facets claims-adjudication platform as part of a broader effort to improve payment speed, automated claims processing and payment-integrity capabilities. Kao described Facets as an industry-leading system and said the company had replaced a platform it viewed as insufficient for its scale.

“During this transitional period, we experienced greater volatility in claims processing,” Kao said. The volatility was most pronounced in July, when Alignment identified higher claims trends and a notable increase in provider-led appeals and disputes.

Kao said appeal activity declined significantly in August, September and October, while institutional acute-care costs stabilized as the company exited September and entered October. Still, management elected to assume that elevated third-quarter medical costs would continue through the remainder of 2026.

Chief Financial Officer Jim Head said roughly half of the year-over-year MBR increase stemmed from Part D seasonality and incremental investments in the clinical model. The remaining increase reflected provider appeals and disputes, skilled nursing costs and catastrophic cases.

Alignment has responded by expanding its payment-integrity operations, adding prepayment claims edits and strengthening post-payment reviews. The company is also deploying clinical resources more systematically across markets, with the goal of reducing variability in member outcomes and controlling costs.

Outlook Reduced Despite Stabilizing Trends

For full-year 2026, Alignment now expects:

• Revenue of no less than $5.25 billion;
• Adjusted gross profit of no less than $575 million; and
• Adjusted EBITDA of no less than $100 million.

For the fourth quarter, the company forecast membership of at least 305,000, revenue of at least $1.32 billion, adjusted gross profit of at least $104 million and adjusted EBITDA of at least negative $28 million. The fourth-quarter gross-profit outlook implies an MBR of 92.1%.

Head said the fourth-quarter guidance assumes that the higher appeals and disputes, skilled nursing length-of-stay issues and catastrophic-case costs persist at elevated levels. The forecast does not include potential benefits from payment-integrity or clinical initiatives already under way, though the costs of those initiatives are included.

“Our updated outlook reflects prudence in our positioning as we address the pressures we discussed today,” Head said.

Adjusted selling, general and administrative expense was $120 million in the third quarter, up 27% year over year. As a percentage of revenue, adjusted SG&A improved 70 basis points to 8.9%. Head said the quarter included a benefit from lower incentive-compensation accruals, while the company continued to invest in clinical and administrative capabilities for future growth.

Alignment generated $158 million in operating cash flow during the first nine months of 2026 and ended the third quarter with $743 million in cash equivalents and short-term investments. Its funded leverage ratio was 2.4 times trailing 12-month EBITDA.

Management Targets at Least 20% Growth in 2027

Despite the revised 2026 outlook, Kao said Alignment expects to achieve at least 20% top-line growth in 2027 based on early annual enrollment period, or AEP, results. The company reviewed its 2027 bids against current medical trends and adjusted plans, networks and growth expectations in certain markets and products.

Kao cautioned investors against using the fourth-quarter MBR outlook as a run-rate assumption for 2027. He said the company’s forecast does not reflect anticipated benefits from initiatives designed to improve payment accuracy, claims management and clinical performance.

Management said it expects a more balanced mix of traditional HMO products and C-SNP products in 2027. Kao said C-SNP membership has performed well on margins during 2026 and was not a key driver of the company’s cost pressures.

The company also plans to enter San Antonio and Charlotte in 2027, while continuing work toward adding additional states in 2028. Kao said Alignment’s goal remains to scale its care model nationally, supported by more automated operations and greater utilization-management capabilities.

Star Ratings and Provider Alignment Remain Focus Areas

Alignment maintained ratings of 4 stars or higher in six of its seven eligible plans for the 2028 payment year. Its California HMO contract, however, received a 3.5-star rating, below management’s expectations.

Kao said the California shortfall was driven primarily by misses on several triple-weighted measures, including Health Outcomes Survey, or HOS, and Part D measures, along with higher-than-expected industry cut points. The company has initiated provider and member engagement efforts, addressed Part D data issues and accelerated HEDIS gap-closure work.

Management said it is adding personnel in local markets and embedding Stars-related investments in its existing guidance. Kao characterized Stars performance as an enterprise-wide responsibility rather than a single department’s task.

Alignment is also seeking more direct control over utilization management. Kao said the company is about 80% through a process of taking back responsibility for inpatient acute utilization-management functions from certain delegated provider groups. The company sees additional opportunity in pre-service management of outpatient and professional spending, including directing members to high-performing providers.

“Our focus is now on execution, delivering against the commitments we are making today, and positioning ourselves well for 2027,” Kao said.

About Alignment Healthcare (NASDAQ:ALHC)

Alignment Healthcare, Inc is a technology-enabled health insurance company focused on providing Medicare Advantage plans for seniors. The company combines health plan coverage with care coordination and clinical services designed to help members manage chronic conditions, access providers and navigate the health care system.

Its offerings include Medicare Advantage plans, supplemental benefits and member support services. Alignment also uses its proprietary technology platform, including the Alignment Virtual Application (AVA), to support care teams, analyze health information and help deliver more personalized services to members.

Founded in 2013, Alignment Healthcare serves Medicare-eligible consumers in selected markets, including California, Florida, Nevada and North Carolina.

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